Clean Cities Conference 2004China Commercial Brief

Commercial Service Representative Matthew Gettman, U.S. Commercial Service, U.S. Embassy Beijing

Doing Business in China

1. Have clear contract terms.

2. Make certain your project is economically viable.

3. Know your partner. Do your "due diligence," and do it well.

4. Know the rules; beware of offers to bend them in your favor.

5. Search for problems before they materialize.

6. Do a thorough risk analysis.7. Mind the store.8. Expect virulent competition,

pricing pressure.9. Get paid. 10. Watch Your Intellectual

Property Rights.

Doing Business in China

• Myths – 1.3 billion people vs consumers• Obstacles – IPR, contract negotiations, rule of law,

Guanxi• Opportunities – growth vs Italy, increasing

consumers and spending• Olympics

China’s Economic Situation through Q3 2003

Economic growth ~8%, GDP reached $1.3 trillion

U.S. Exports to China up ~20% (est. 2003 USD 25 billion)

U.S. Imports from China up ~20% (est. 2003 USD 150 billion)

FDI 2002 >USD 50 billion up 10%, est. 2003 <USD 35 billion

Urban Annual Per Capita Disposable Income (APCDI) 2002 ~ USD 1k, up ~10%, Rural

APCDI 2002 ~ USD 250, up ~8%

<759 million total employed

Economic Impact of Outsourcing on U.S. Manufacturing

• U.S. is largest manufactured goods producer/exporter; Mfg sectoralone is larger than all but four countries’ respective economies (China not one of the four).

• Manufacturing generates 14 percent of the national gross domestic product and directly employs 14.7 million Americans, 11percent of all American workers.

• U.S. manufacturing is most competitive, productive and through new technologies, more efficient, requiring fewer workers overall, but with a higher-skilled workforce.

• American manufacturing is facing one of the most significant competitive challenges.

Adversity for U.S. Manufacturers

• The U.S. Commerce Department led a series of nationwide roundtables to hear firsthand, the concerns of manufacturers. While some of their concerns were about unfair foreign competition and low-wage overseas competition, most were of a domestic nature, including the high costs of health care, litigation, energy, and government regulations that make it more difficult for U.S. manufacturers to compete globally.

• Commerce has issued a comprehensive Manufacturing report outlining a strategy for addressing these issues. www.manufacturing.gov

Create Jobs in the U.S. not Overseas

• U.S. President wants to create jobs in America – not overseas.

• “Off-shoring” versus job growth in the U.S.

• Overseas engagement – not economic isolation creates opportunity for U.S. jobs.

• Push for open foreign markets and help U.S. firms export their goods and services around the world.

• “Insourcing” - Open trade allows foreign companies to locate their plants here – U.S. jobs with foreign firms’ paychecks to Americans.

• Outperform the world, not isolate ourselves from it, by making sure that American workers have the best training and skills in the world.

Chinese Economy

• 8.5 percent growth in 2003, reaching USD 1.4 trillion and 7-9% annual growth during each of the next four years. Total worldwide imports into China grew 41 percent in 2003.

• Sixth largest U.S. export market, fastest-growing market, among our top-ten trading partners, USD 28.4 billion last year—up 29 percent from 2002.

• Post WTO accession, U.S. firms have better access to China and now playing catch-up compared to their Chinese competitors who have always had a comparably easier access to the U.S. market. The USG is working to ensure that China lives up to its WTO commitments (IPR, NTTB) so that U.S. firms receive the maximum benefits of trade (see JCCT outcomes sheet at www.ita.doc.gov).

• Third largest trading partner. Means rising standard of living, disposable income in China.

Look Worldwide – Not Just China

• 95% world’s consumers live outside U.S. • 2003 U.S. exports > USD 1 trillion goods and services, world's largest exporter. • SMEs = 97% total U.S. exporting firms but only 30% total value of exports.• Good opportunities to export to Mexico, Canada, and throughout Asia, Europe, South

America.• Look also to U.S FTAs with Chile, Israel, Jordan, Singapore and the NAFTA countries of

Canada and Mexico. • Look also to U.S. negotiations that concluded on FTAs with Morocco and Australia and a

U.S.-Central American Free Trade Agreement: Costa Rica, Honduras, Guatemala, El Salvador, and Nicaragua (also known as CAFTA). FTA negotiations with the Dominican Republic have also concluded.

• FTA negotiations are continuing with both Bahrain and the Southern African Customs Union. The U.S. has announced its intent to negotiate future free trade pacts with Thailand, Panama, and several members of the Andean community—Colombia, Peru, Ecuador, and Bolivia.

Global Natural Gas Potential

• 200 million commercial vehicles in operation today• Market drivers:

– China and India mandates– North American natural gas mandates and incentives– EU Proposed Directive that 10% of transport sector to be

natural gas by 2020– Global supply infrastructure development accelerating– LNG production/trade accelerating

Beijing Market Conditions

• China’s capital with 12 million people

• Economic growth of 8-10%

• Beijing to host the 2008 Olympics

• The “Greening of Beijing” was an important political part of the Olympic bid

• 2002 mandate that all buses in the inner city to run on CNG or LPG

Marketing the Olympics(www.beijing-2008.org)

“Green Olympics, High-Tech Olympics, People’s Olympics”

U.S. DOE-Chinese Ministry of Science and Technology Cooperation

Assist Beijing and the 2008 Olympics with the transition to the efficient use of natural gas by doing the following:

– Identify issues and build teams– Organize a US/China Natural Gas Coalition– Organize efficient natural gas technologies and policy workshops– Develop a demonstration project

Olympic GreenOlympic Green

• Half of total venues, including National Stadium

• Olympic Village • International Exhibition Centre • Chinese Ethnic Culture

Museum• 1,215 hectares, inc 760 of

woods/greenery

Athletes village

Media Centre

Venue Construction

• 2008 games will require a total of 37 stadiums and gymnasiums

• 32 of the venues in Beijing and 5 outside of Beijing (Shenyang, Qinhuangdao, Lianjin, Qingdao and Shanghai)

• 15 venues are new constructions while 11 are renovation projects and 4 are temporary sites

Key PlayersKey PlayersLiu Qi

President of BOCOGMayor of Beijing

State Council

Liu JingminExecutive Vice President BOCOG

Vice Mayor of Beijing

General Office

International Relations

Marketing

Media & Communications

Legal Affairs

Venue Planning & Construction

Technology

Sport

Environmental Affairs

NDRC

Ministry of ConstructionMinistry of Railways

Ministry of Communications

Ministry of Information Industry

Ministry of Water Resources

Ministry of Commerce

State Sport GeneralAdministration

Development and Planning

Commission

Planning Commission

Deputy Mayors

Beijing Organizing Committee for the 2008 Olympic Games (BOCOG)Address: No. 24 Address: No. 24 DongsishitiaoDongsishitiao, Beijing 100007, Beijing 100007TelnoTelno: 00 86 10 8402 2008: 00 86 10 8402 2008Email: 2008@Email: 2008@beijingbeijing--olympicolympic.org..org.cncn

Wang WeiSecretary General

BOCOG

Beijing Municipality

Environmental Concerns

• Recent industrialization and vehicle growth have resulted in poor air quality in most urban centers

• Since 1990 there has been a sharp increase in ambient NOx levels –coinciding with increaseof vehicles

• Focus of government isto reduce emissions frommobile pollution sources

Population Impacted

1 China 85 132.02 India 62 84.13 Japan 4 41.94 USA 6 41.15 Brazil 2 26.76 South Korea 5 21.27 Mexico 1 16.68 Pakistan 15.59 Turkey 5 13.8

10 Russia 2 10.511 Egypt 1 9.712 France 1 9.513 Bangladesh 9.414 Philippines 1 9.315 Germany 3 9.216 Indonesia 1 8.617 Vietnam 7.718 UK 1 7.619 Hong Kong 6.920 Iran 1 6.8

Population in Cities > WHO Guidelines

Country Number of Cities Over WHO Guidelines

Over 132 million Chinese citizens live in regions with

air quality below World Health Organization guidelines

Source: World Resources Institute (1993-1995 Data), Study on the Effect of Air Pollution on Children

Increased Car OwnershipVehicle Population Growth in China - FORECAST

19.0 people/car

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

Num

ber o

f Veh

icle

s

1.0

10.0

100.0

1,000.0

Num

ber o

f Peo

ple

/ Car

(log

sca

le)

New Passenger Car Registrations

Number of People / Car

USA = 1.3 people/car

FORECAST

Infrastructure Requirements

• Success of CNG vehicles is requires the availability of fueling infrastructure and economically priced fuel

• Chinese Government has committed US$ 4.1 billion for NG infrastructure improvements

• Chinese Government is supporting the switch to NG in all regions

Urumqi

Chongqing

Chengdu

Lanzhou

Shanghai

Tianjin

Beijing

XianZhengzhou

Changchun

Shenyang

Yinchuan

Luzhou

Mianyang

Neijang

Linyi

ZigongYibin

Leshan

Jiangyou

Nanchong

Bazhong

Golmud

Guanghan

Enshi

HechuanYongchuan

Suining

Guangan

Korla

Shifang

Emeishan

Langzhong

Ziyang

Hong Kong

Tulufan

Qionglai

NanchuanMeishan

Xining

Current Pipelines 2003

City With Natural Gas Buses

Source: Anser

Urumqi

Chongqing

Chengdu

Lanzhou

Shanghai

Tianjin

Beijing

XianZhengzhou

Changchun

Shenyang

Yinchuan

Luzhou

Mianyang

Neijang

Linyi

ZigongYibin

Leshan

Jiangyou

Nanchong

Bazhong

Golmud

Guanghan

Enshi

HechuanYongchuan

Suining

Guangan

Korla

Shifang

Emeishan

Langzhong

Ziyang

Hong Kong

Tulufan

Qionglai

NanchuanMeishan

Xining

TianjinYinchuan

LangfangJiayuguan

Jinan

Proposed Pipeline Network 2005

West-East Pipeline NetworkCity With Natural Gas Buses

Source: Anser

Future Requirements

China National Offshore Oil Corporation (CNOOC) GM Fu Chengyu quoted 26 April 2004 as stating that:

• China’s annual natural gas consumption will reach 160-210 billion cubic meters by 2020; today China has 1,300-1,600 billion cubic meters of natural gas reserves

• 49% of that demand will be imported; 39% from LNG imports and 10% from Russia and Central Asian nation pipelines

• Average annual growth demand prediction of 12% to 2020

Our Offices in China

Beijing31st Floor, North Tower,Beijing Kerry Center, No. 1 Guanghua LuBeijing 100020, ChinaTel: (86-10) 8529-6655Fax: (86-10) 8529-6558/9E-mail: Beijing Office Box

Hong Kong26 Garden Road, Hong KongTel: (852) 2521-1467Fax: (852) 2845-9800E-mail: Hong Kong Office Box

Chengdu4 Lingshiguan Lu, Renmin Nanlu Section 4Chengdu, Sichuan 610041, ChinaTel: (86-28) 558-3992/9642Fax: (86-28) 558-9221/3520E-mail: Chengdu Office Box

ShanghaiShanghai Center, Suite 6311376 Nanjing West RoadShanghai 200040, ChinaTel: (86-21) 6279-7630sFax: (86-21) 6279-7639E-mail: Shanghai Office Box

Guangzhou14/F China Hotel Office Tower, Room 1461Liu Hua RoadGuangzhou 510015, ChinaTel: (86-20) 8667-4011Fax: (86-20) 8666-6409E-mail: Guangzhou Office Box

Shenyang52 Shi Si Wei LuShenyang, Liaoning Province 110003, ChinaTel: (86-24) 2322-1198 ext. 189Fax: (86-24) 2322-2206